Stocks remain under pressure as oil prices slip further

01:00, 12 januari 2016

Dela

At one point yesterday it looked like European markets could be set for a positive session until oil prices took another leg down in the afternoon with US and Brent prices hitting new twelve year lows, in the process pulling equity markets down with them.
With expectations growing that the Chinese yuan has further to go in terms of declines, due to a weakening Chinese economy, speculation is rising that oil prices could well push below the $30 a barrel level in the coming days, particularly given yesterday’s announcement by the EU that Iranian sanctions could be lifted fairly soon.
The offshore Yuan has received a respite this week rallying sharply after intervention from the People’s Bank of China which saw overnight offshore rates in Hong Kong shoot up to record highs squeezing out a raft of one way short yuan positions in the process. This recovery in the offshore yuan could well be enough to help put a floor under stock markets in the short term, as US markets managed to stabilise yesterday despite posting new multi week lows during the day.
Despite this rebound markets remain nervous about the health of the Chinese economy and are likely to remain so until next week’s Q4 GDP and December industrial production and retail sales numbers give a clearer picture, though tomorrow’s December trade data is also likely to add the mix.
With investors set to keep a wary eye on events in China, expectations around the start of US earnings season could well limit the extent of any rebound in US markets.
As far as data announcements are concerned the UK economy is set to come under scrutiny this morning with the latest manufacturing and industrial production data for November.
The pound has taken a bit of a tumble in recent days as interest rate rise expectations have slipped back over concerns that the current trend in GDP growth may be slowing. Yield differentials between 2 year US treasuries and 2 year gilts have widened in favour of US treasuries to their highest levels since 2006, helping push the pound to its lowest level against the greenback since 2010.
Today’s data is expected to paint a fairly lacklustre picture of the sector with manufacturing output expected to come in at 0.1%, up from a 0.4% decline in October. Industrial production is expected to flat line at 0%.
Earlier this month Chancellor George Osborne warned of a dangerous cocktail of risks in the coming months from China and the prospect of a global slowdown. It will be interesting to see if Bank of England Governor Mark Carney shares those concerns when he speaks later today in Paris, ahead of Thursday’s Bank of England rate decision.
The UK retail sector returns to the spotlight today as Boohoo.com, Morrisons and Debenhams update the markets on their pre and post-Christmas trading numbers. This time last year boohoo.com stunned the market with a profits warning sending its shares sharply lower. It’s been a long road back since then with the shares just about back near the same levels prior they were a year ago, after posting positive updates in June and September last year. Will the newly floated companies Christmas numbers complete the circle and the round trip from the 38p levels of the 6th January 2015?
EURUSD – we got the move to 1.0950 overspilling towards 1.0970 before sliding back. We need to see the euro hold above the 1.0820 level to suggest a further move higher towards 1.1100. Only a move back below 1.0800 argues for a retest towards the 1.0600 level where we have trend line support from the all-time lows posted in October 2000 at 0.8220. A break below 1.0600 could see a return to 1.0465 and last year’s low.
GBPUSD – the pound continues to look weak and though we managed to break the sequence of ten consecutive daily declines we remain at risk of a retest of the 2010 lows at 1.4230. We need to recover back through 1.4650 to stop the rot and stabilise for a rebound towards 1.4820.
EURGBP – despite a sharp move to 0.7555 yesterday, falling shy of the 0.7595 area, we posted a bearish key day reversal suggesting the potential for a sharp pullback. Having fallen back below the October highs at 0.7490/95 we could well see a move towards the 0.7410 area, with a break below arguing for a return to the 0.7280 area.
USDJPY – we’ve seen a rebound from the 116.65 area after seven consecutive daily declines, which suggests we might see a return to the 118.30 area in the short term. We need to see a move back through the 118.30 area to stabilise a risk a move back towards the 120.00 area.
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